FRASER RESEARCH BULLETIN August 2020 The Price of Public Health Care Insurance, 2020
by Milagros Palacios and Bacchus Barua
SUMMARY
Canadians often misunderstand the true mon Canadian family types, depending on the cost of our public health care system. This oc- type of family. curs partly because Canadians do not incur The 10 percent of Canadian families with direct expenses for their use of health care, and the lowest incomes will pay an average of about partly because Canadians cannot readily deter- $471 for public health care insurance in 2020. mine the value of their contribution to public The 10 percent of Canadian families who earn health care insurance. an average income of $65,522 will pay an aver- In 2020, preliminary estimates suggest the age of $6,627 for public health care insurance, average payment for public health care insur- and the families among the top 10 percent of ance ranges from $4,190 to $14,474 for six com- income earners in Canada will pay $39,731. fraserinstitute.org FRASER RESEARCH BULLETIN 1 The Price of Public Health Care Insurance 2020
Introduction ans cannot easily work out precisely what they The purpose of this research bulletin is to help pay to government each year for health care individual Canadians and their families better because there are many different sources of understand how much they annually contribute government revenues that may contribute to to Canada’s public health care system. funding health care, including income taxes, Employment Insurance (EI) and Canada Pension While Canadians may not be billed direct- Plan (CPP) premiums, property taxes, profit ly when they use medical services, they pay a taxes, sales taxes, taxes on the consumption of substantial amount of money for health care alcohol and tobacco, and import duties, among through the country’s tax system. Unfortunate- others. Some Canadians might assume that in ly, the size of these tax payments is hard to de- those provinces that assess them, health care termine because there is no “dedicated” health premiums cover the cost of health care. How- insurance tax. As a result, individuals and fami- ever, the reality is that these premiums cover lies often cannot fully appreciate the true cost just a fraction of the cost of health care and are they pay towards the public health care system. paid into general revenue from which health care is funded.
Why the misunderstanding? The available numbers can be difficult to digest. One reason why Canadians don’t know the true For example, health spending figures are often cost of health care is because the physician and presented in aggregate, resulting in numbers so hospital services that are covered by tax-fund- large they are almost meaningless. For instance, ed health care insurance are free at the point approximately $172 billion of our tax dollars were of use.1 This situation leads many people to un- estimated to have been spent on publicly funded derestimate the true cost of health care as it ig- health care in 2019 (CIHI, 2019).4 nores the substantial taxpayer-funded cost of It is more informative to measure the cost of our the system.2 health care system in per capita dollars: the $172 Furthermore, health care in Canada is financed billion spent equates to approximately $4,582 through general government revenues rather per Canadian (CIHI, 2019; Statistics Canada, than through a dedicated tax,3 which blurs the 2020b; authors’ calculations). This would be the true dollar cost of the service. Indeed, Canadi- cost of the public health care insurance plan if every Canadian resident paid an equal share.
1 Free in a monetary sense. There are, however, However, Canadians do not pay equal tax costs associated with health care use in Canada that amounts each year. Some Canadians are chil- are not monetized, such as wait times for access to medical services. For more on this, see Globerman, 2013. 4 This figure includes health spending from pro- vincial and territorial government funds, federal 2 It is also important to consider the costs associ- health transfers to the provinces and territories, ated with funding health care through tax revenues. and provincial government health transfers to local For more on this, see Esmail, 2008. governments. It does not include federal direct, mu- 3 A dedicated tax is earmarked and separated from nicipal government, and social security funds, which other taxes; its revenues are used for a particular together accounted for 7.6 percent of total public purpose. sector spending on health care in 2019 (CIHI, 2019).
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Table 1: Average Income and Average Total Tax Bill of Representative Families, 2020*
Family Type Average Cash Average Total Tax Rate Health Care Income ($) Tax Bill ($) Insurance ($)
Unattached Individuals 44,153 17,000 38.5% 4,894 2 Parents, 0 Children 115,066 47,749 41.5% 13,745 2 Parents, 1 Child 133,119 46,072 34.6% 13,262 2 Parents, 2 Children 142,449 50,282 35.3% 14,474 1 Parent, 1 Child 58,649 14,940 25.5% 4,301 1 Parent, 2 Children 64,133 14,555 22.7% 4,190
* Preliminary estimates Source: The Fraser Institute's Canadian Tax Simulator, 2020.
dren and dependents and are not taxpay- care insurance. The estimated total tax bill for ers. Conversely, higher-income earners bear a the average Canadian family in 2020 is derived greater proportion of the tax burden than low- from Palacios and Fuss (2020) while total health er-income earners and thus contribute propor- care expenditures for 2020 are based on the tionally more to our public health care system. average growth rate for the five-year period Various tax exemptions and credits also fur- from 2015 to 2019. The proportion of the fam- ther complicate matters. Clearly, the per-capita ily’s tax bill devoted to health care insurance is spending measure does not accurately repre- assumed to be the same proportion of tax rev- sent the true cost of public health care insur- enues spent on health care by the government. ance for Canadian individuals and families. In 2020/21, an estimated 28.8 percent of tax revenues (income) will be spent on health care The cost of health care by family type (Statistics Canada, 2020a; CIHI, 2019; Fraser In- stitute, 2020; authors’ calculations). In order to more precisely estimate the cost of public health care insurance for the average Table 1 shows six Canadian family types, the es- Canadian family in 2020, we must determine timated average income6 for those family types how much tax an average family pays to all lev- els of government and the percentage of the taxes, motor vehicle licence fees, natural resource 5 family’s total tax bill that pays for public health fees, and a host of other levies. For further details on how the total tax bill is calculated for the aver- age Canadian family, see the methodology section at 5 The total tax bill includes income taxes (personal Palacios and Fuss (2020). and business), property taxes, sales taxes, payroll taxes, health taxes, import duties, taxes on the con- 6 The definition of “income” used throughout this sumption of alcohol and tobacco, fuel taxes, carbon article is cash income, which includes wages and
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Figure 1: Inflation-adjusted Cost of Public Health Care Insurance, for Representative Families, 2019 and 2020
16,000
14,000 2019 12,000 2020 10,000
8,000 2020$ 6,000
4,000
2,000
0 Unattached 2 Parents, 2 Parents, 2 Parents, 1 Parent, 1 Parent, Individuals 0 Children 1 Child 2 Children 1 Child 2 Children
Sources: The Fraser Institute’s Canadian Tax Simulator, 2020; BMO, 2020; CIBC, 2020; RBC, 2020; authors’ calculations.
in 2020, and their estimated dollar contribu- Figure 1 shows the inflation-adjusted7 cost of tion to health care. The calculations presented public health care insurance for the six rep- assume that the health care insurance paid by resentative family types from 20198 to 2020. each Canadian family comes from their total Based on the assumptions detailed above, pre- tax bill. liminary estimates suggest that the cost of pub- lic health care insurance in 2020 will increase: In 2020, the average unattached (single) indi- vidual, earning an average income of $44,153, will pay approximately $4,894 for public health 7 Calculated using the consumer price index (CPI), care insurance. An average Canadian fam- and presented in constant 2020 dollars. For the year ily consisting of two adults and two children 2020, the CPI index was estimated based on the (earning approximately $142,449) will pay about average of private forecasters (BMO Capital Markets, $14,474 for public health care insurance. 2020; CIBC Economics, 2020; TD Economics, 2020; and RBC Economics, 2020).
8 Estimates in this study are based calculations by salaries, self-employment income (farm and non- Palacios and Fuss (2020), who use Statistics Can- farm), interest, dividends, private and government ada’s Social Policy Simulation Database and Model pension payments, old age pension payments, and (SPSD/M) to allocate federal taxes to the provinces other transfers from governments (such as the uni- as well as cash income and tax shares to various versal child care benefit). family types.
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Table 2: Average Income and Total Tax Bill in Each Decile, 2020*
Decile Average Cash Average Total Tax Rate Health Care Income ($) Tax Bill ($) Insurance ($)
1 14,168 1,636 11.5% 471 2 29,989 5,521 18.4% 1,589 3 40,760 10,958 26.9% 3,154 4 52,077 16,940 32.5% 4,876 5 65,522 23,020 35.1% 6,627 6 81,820 29,270 35.8% 8,426 7 99,817 37,774 37.8% 10,874 8 123,868 47,494 38.3% 13,672 9 158,939 63,778 40.1% 18,359 10 281,988 138,023 48.9% 39,731
Notes: * Preliminary estimates ** Deciles group families from lowest to highest incomes with each group containing 10% of all families. The first decile, for example, represents the 10% of families with the lowest incomes. Source: The Fraser Institute's Canadian Tax Simulator, 2020.
3.5% for the average family consisting 3.8% for the average family consisting of 1 of 2 adults and no children9 (from $13,276 to parent and 2 children (from $4,035 to $4,190). $13,745);
0.9% for the average family consisting of 2 The cost of health care by income group parents and 1 child (from $13,138 to $13,262); Table 2 divides Canadian families into 10 in- 1.3% for the average family consisting of 2 come groups (or “deciles”) to show what fami- parents and 2 children (from $14,287 to $14,474); lies from various income brackets will pay for 7.4% for the average unattached individual public health care insurance in 2020. (from $4,555 to $4,894); According to this calculation, the 10 percent of 7.6% for the average family consisting of 1 Canadian families with the lowest incomes will parent and 1 child (from $3,997 to $4,301); pay an average of about $471 for public health care insurance in 2020. The 10 percent of Ca- 9 “2 adults, 0 children” includes elderly couples who nadian families who earn an average income of might have children, but whose children do not live $65,522 will pay an average of $6,627 for public with them. health care insurance, and the families among
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Table 3: Average income and average total tax bill of representative families, 2020 (assuming healthcare spending unchanged from 2019)*
Family Type Average Cash Average Total Tax Rate Health Care Income ($) Tax Bill ($) Insurance ($)
Unattached Individuals 44,153 17,000 38.5% 4,729 2 Parents, 0 Children 115,066 47,749 41.5% 13,283 2 Parents, 1 Child 133,119 46,072 34.6% 12,816 2 Parents, 2 Children 142,449 50,282 35.3% 13,987 1 Parent, 1 Child 58,649 14,940 25.5% 4,156 1 Parent, 2 Children 64,133 14,555 22.7% 4,049
* Preliminary estimates Sources: The Fraser Institute’s Canadian Tax Simulator, 2020; calculations by authors.
the top 10 percent of income earners in Canada from 2015 to 2019.10 This rate (3.5 percent) is will pay $39,731. smaller than projected increases in provinc- es like Saskatchewan (4.9 percent) and PEI (8 percent), but larger than others (like Alberta)11 Limitations which project little to no change in overall The estimates of the total tax bill for families in spending (Alberta, 2020a; Saskatchewan, 2020; 2020 are based on preliminary estimates from Campbell and Williams, 2020; Alberta, 2020b Palacios and Fuss (2020) who note that “[e]sti- and 2020c). In order to provide a more conser- mates of both income and total taxes for 2020 vative estimate, table 3 presents the amount have been significantly affected by the econom- that families would pay through the country’s ic ‘shutdown’ in response to COVID-19.” Their estimates for the tax burden on families in 2020 10 Specifically, we assume that health care spend- also do not account for deficits which will have ing will grow by 3.5 percent from $172,227 million in to be paid for by taxes on future generations. 2019 to $178,218 million in 2020.
Of course, COVID-19 has also affected Canada’s 11 According to Budget 2020, the operating expenses public health care system in a number of ways of the Ministry of Health was projected to decrease that are yet to be accounted for by official es- slightly from $20,828 million in 2019/20 to $20,616 million in 2020/21. In the update released in March timates of health care spending in 2020. This 2020, the government announced that it was pro- study estimates the proportion of the family’s viding an additional $500 million in 2020/21 to the tax bill devoted to health care insurance (28.8 Ministry of Health, which means that the ministry’s percent) based on the average growth rate of operating spending is projected to increase by 1.4 health care spending for the five-year period percent from 2019/20.
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tax system assuming total provincial-territorial c2/cbc28681-ebd8-409f-9ede-107117bdb276/ health care spending is unchanged from 2019. cdamodel.pdf>, as of July 7, 2020. Campbell, Kerry, and Nicole Williams (2020). Conclusion P.E.I. Projects Biggest-Ever Deficit as Spend- ing Increases During Pandemic. CBC News Tables 1 and 2 present a much different (June 17). fraserinstitute.org FRASER RESEARCH BULLETIN 7 The Price of Public Health Care Insurance 2020 www.rbc.com/economics/economic-data/ Milagros Palacios is the Associate pdf/economy_can.pdf>, as of July 7, 2020. Director of the Addington Centre for Measurement at the Fraser In- Statistics Canada (2020a). Table 10-10-0039-01: stitute. She holds a BSc in Industrial Consolidated Federal, Provincial, Territorial and Engineering from the Pontifical Local Government Revenue and Expenditures. Catholic University of Peru and an Statistics Canada. Copyright © 2020 by the Fraser Institute. All rights re- Acknowledgments served. Without written permission, only brief passag- The authors wish to thank the Lotte and es may be quoted in critical articles and reviews. John Hecht Memorial Foundation for their ISSN 2291-8620 generous support of this project. This edi- Media queries: call 604.714.4582 or tion of The Price of Public Health Care Insur- e-mail: [email protected] ance draws extensively on previous editions. We would therefore like to acknowledge Support the Institute: call 1.800.665.3558, ext. 586 or e-mail: [email protected] the important contributions of the original authors of this report, Nadeem Esmail and Visit our website: www.fraserinstitute.org Niels Veldhuis. fraserinstitute.org FRASER RESEARCH BULLETIN 8